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In a recent article' F. M. Scherer analyzes the effects of potential imitation on the speed and vigor with which an innovator is likely to carry out projects for the development of new products under various conditions in a duopolistic rivalry. Scherer, by choice, does not explore the case in which imitation is more profitable than innovation; but his models lend themselves readily to discussion of at least some aspects of such a situation. Several years ago one of us first heard the term fast second used by the director of an industrial laboratory to describe what he regarded as the inhibiting effects of imitation on the development of new products in his industry. Under the particular product and market conditions of this industry, according to this gentleman, the most profitable strategy in regard to new products was one in which the firm's laboratory concentrated on analysis and reverse engineering of competitors' developments and abandoned original R & D of its own. The products of this particular industry are such that they can be analyzed fairly easily, and production processes lend themselves to imitation without lengthy and costly retooling. Most innovations involve new compounds, shapes and coatings, and the improvements can very often be incorporated in variants on the original in ways which make patent infringement suits problematic at best. The products are used as necessary but minor components in a wide variety of manufacturers' equipment.
Baldwin et al. (Tue,) studied this question.